Kapiti Coast Real Estate Ltd and Kapiti Homebuild Ltd today pleaded guilty in the Wellington District Court to breaching the Fair Trading Act by misleading a home owner about a fee included in the cost of building his home.

The Commerce Commission prosecuted the companies.

Commission Chairman Dr Alan Bollard said that at first Kapiti Homebuild did not disclose that an extra $4,154 fee had been included in the cost of a house it was building in Upper Hutt. The fee was payable to Kapiti Coast Real Estate.

Three months after contracting with Kapiti Homebuild, the home owner learned of the extra fee. He queried it, and Kapiti Coast Real Estate stated that it had a right to claim a $4,500 franchise fee from him.

The house was built on land already owned by the home owner. It had not been bought through Kapiti Coast Real Estate.

The home owner had not entered into any agreement with Kapiti Coast Real Estate nor did Kapiti Homebuild enter into any agreement with Kapiti Coast Real Estate on his behalf.

Real estate agents cannot add the cost of commissions or any other fees unless there is a written contract which allows them to do so.

Dr Bollard said that after receiving a complaint from the home owner, the Commission investigated and discovered that the companies had a franchise agreement under which Kapiti Homebuild would pay a "service" fee of $4,000 plus GST to Kapiti Coast Real Estate when it received the deposit to build a house.

Dr Bollard said the agreement in itself may not have breached the Fair Trading Act, but not disclosing that an extra fee was being charged and later falsely claiming a right to charge the fee did breach the Act.

"All fees should be clearly disclosed before a sale goes ahead," Dr Bollard said. "Anything else risks breaching the Fair Trading Act."

The case has been adjourned to June 17.

Media contact: Communications Officer Vincent Cholewea

Phone work (04) 498 0920, home (04) 479 1432